With the foreign exchange market swinging on central bank policies and the bout of volatility, one U.S. dollar exchange traded fund has been outperforming.
Over the past three months, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), the largest USD-related ETF with $1.3 billion in assets under management, dipped 2.2% while the actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU) was up 0.7%. Year-to-date, UUP rose 4.4% and USDU gained 5.5%.
The two USD ETFs try to reflect the performance of the U.S. dollar against a basket of foreign currencies. The recent outperformance in USDU may be attributed to its exposure to a broader currency portfolio and lower tilts toward developed market currencies that were used as safe-havens during the rise in volatility.
Specifically, USDU’s currency exposure includes the euro 32.6%, Japanese yen 19.7%, Canadian dollar 10.9%, British pound 9.5%, Mexican peso 9.1%, Australian dollar 5.8%, Swiss franc 4.3%, South Korean won 3.3%, Chinese yuan 2.9% and Brazilian real 2.0%.
On the other hand, UUP focuses on more developed countries, including euro 57.6%, yen 13.6%, British pound 11.9%, Canadian dollar 9.1%, Swedish krona 4.2% and franc 3.6%.
Unlike UUP, USDU includes emerging market exposure, which may have helped bolster gains as emerging currencies are heading for a 10th weekly drop, the longest losing streak since the 1997 Asian financial crisis. Currency traders are concerned that the eventual Federal Reserve rate hike will trigger increased capital outflows from developing markets.
Among the largest losers, the U.S. dollar has appreciated 13.6% against the Mexican peso and surged 34.9% against the Brazilian real. [This Emerging Markets Currency Could See More Pain]
“Weakness in EM currencies seems to continue and those countries which have a large current account deficit are most vulnerable,” Hertta Alava, the head of emerging markets at FIM Asset Management Ltd., told Bloomberg.
The Chinese yuan jumped 3.1% earlier this month after China’s central banks surprised markets by changing its currency policy.
Moreover, the Australian dollar, another big component of USDU, has depreciated 12.4% against the dollar.
Meanwhile, the euro, yen, franc and pound sterling have all recently strengthened against the USD. For instance, the EUR has gained 6.6% against the USD since the March low. [Safe-Haven Currency ETFs Shine Amid Market Carnage]
For more information on the USD, visit our U.S. dollar category.
Max Chen contributed to this article.